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Court of Appeal Holds Arbitration Agreement Invalid

Yes, again.This time, the court refused to enforce an arbitration agreement that was included in an application form. (Don't do this). The key issues for the court were (1) that the agreement was written in the first person so as to suggest it was one-way (2) that the agreement referenced the AAA arbitration rules, but did not attach them to the agreement (3) that there was no language explaining that "binding arbitration" means you give up the right to trial in court and (4) that the agreement was "take it or leave it."

The one-way language and the inclusion of the agreement to arbitrate in the application materials probably weakened this arbitration agreement such that it was easy to invalidate. But on the issue of "arbitration rules," the court does not mention that the AAA employment rules are modeled after the California Supreme Court's decision in Armendariz, that they provide more employee protection than the statutory arbitration acts, and that Armendariz itself does not require attaching the rules. Indeed, Armendariz allows for implying the statutory rules if an arbitration agreement is silent regarding matters such as discovery.

On the issue of explaining what "binding arbitration" means, Armendariz does not require that either. The term "binding" is not too complex.

The labyrinth of requirements the courts are imposing in the name of "unconscionability" is going to make it hard for employers to create a "bullet-proof" agreement. Sooner or later, a court will consider whether the unconscionability doctrine has been stretched too far, and that it is a back-door attack on the Federal Arbitration Act's preemption law. Until then, employers should be aware that arbitration agreement law is in flux and that their agreements may be challenged on a variety of grounds that may not always be obvious.